Chinese Tech: Let’s talk about the elephant in the room

New Zealand Security Magazine, August 2018

Chinese tech as spies?
Chinese tech companies as government spies?

NZSM editor Nicholas Dynon does his due diligence on media-reported claims that Chinese tech and security manufacturers build products that spy on behalf of Beijing. They’re accusations, he writes, that smell just a little off.

“… as China has integrated into the international order, it has not consistently adopted the governance and values championed by the order’s traditional leaders. Both domestically and as a basis for international engagement, China holds views on human rights and freedom of information that stand in contrast to those that prevail in New Zealand.”

With this assessment of Beijing’s political values, the recently released Defence Strategic Policy Statement (DSPS) paints an unprecedently negative New Zealand Government view of China. Unprecedented because it detours so stunningly from Wellington’s traditionally diplomatic line towards our most important trading partner.

It’s a position that’s no doubt been welcomed by New Zealand’s more hawkish five-eyes partners. The often indelicate diplomatic-speak of Canberra and the bellicose language of the US’ Trump administration, have unequivocally characterised an emergent China as a strategic competitor and threat.

Industrial espionage cases, alleged cyber incursions and Chinese island building in disputed areas of the South China sea are put forward as evidence of the threat. In addition to these is the often-cited principle of international relations that the emergence of a new world power is in itself destabilising to the existing order, and leads to an inevitable escalation of tensions.

In China, they refer to this as the ‘China threat theory. The West, they claim, is driven by a deep desire to ‘contain’ an emergent China because of fears communist Beijing will seek to upset the largely Western-built structures of governance that have defined the post-World War Two international order.

Up until recently, the strategic assessments of Western governments had assumed that China’s decades-long journey towards a free market economy would lead inevitably towards Western-style political reforms within China. This hasn’t happened. Indeed, under the presidency of Xi Jinping, they’ve realised history is taking a rather different turn.

Against expectations, Xi has strengthened his Communist Party’s control over the direction of China’s development, its military, economy, media, and law and order. Western commentators point worriedly to evaporating personal, press and religious freedoms in China, rampant state surveillance and censorship, and an increasingly unforgiving insistence – both within and beyond its borders – on the Party line.

Trade and security: a fork in the road?

Against this background, the DSPS’ emphasis on ‘values’ can be seen as Wellington drawing a line in the sand. It is, as its authors claim, an attempt to align New Zealand’s strategic policy with its values – values that are deeply rooted in the democratic liberalism of the West.

Before the DSPS, China had been cast by Wellington as nothing less (and little more) than New Zealand’s most important trading partner. Under the warm embrace of a Free Trade Agreement (FTA) the envy of the Western World, New Zealand has made billions from China’s seemingly insatiable thirst for dairy, and we’ve been more than a willing market for well-priced Chinese consumer goods.

The reaction in China to the DSPS has thus unsurprisingly been one of disappointment. An article in the Communist Party newspaper People’s Daily observed that this is “the first time the New Zealand government has publicly ascribed to the ‘China threat’ [theory].” The DSPS, it commented, “isn’t a statement that one should make in relation to a friend.”

For the time being, however, China’s protestations are relatively muted, due in part to Wellington’s language stepping short of the comparatively offensive tones of US and Australian remarks. Beijing would also be confident that New Zealand will not want to risk jeopardising upcoming FTA negotiations by sharpening its rhetoric.

But the dual labelling of China as ‘trading partner’ and ‘strategic threat’ is an awkward juxtaposition indeed, and nowhere more so than in those spaces where market interests and security concerns overlap.

We only need look as far as the communications, electronics and security technology markets overseas to witness the tension – and sometimes open slinging matches – that can result. While Chinese brands, such as Huawei and Lenovo, for example, are fast becoming household names, they’re also increasingly accused of being a corporate front for Chinese government espionage and information operations.

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A tale of two value systems

London and Beijing. A Google search of English language media will tell you that the former’s networks of CCTV cameras make it the most surveilled city in the world, and that this is a good thing. It will also tell you that the latter is fast becoming the most surveiled city in the world, and that this isn’t so good.

The difference comes back to the issue of ‘values’. Within China, commentators note, there is an expectation that the private sector will do the bidding of the state, including the offering up of user’s (individuals and organisations) private and sensitive data to authorities. Within the UK, where legislation places curbs on such practices, the social contract is somewhat different.

These two value systems collide in the context of international trade – where Chinese tech and security companies are doing business in Western markets, and vice versa. And it’s here where the scene gets ugly.

According to a late-July Financial Times article, an official watchdog overseen by the UK government’s National Cyber Security Centre revealed that it could only provide “limited assurance” that all risks to national security from Huawei’s involvement in British telecommunications networks had been “sufficiently mitigated”.

This revelation came just months after Chinese telecommunications equipment manufacturer ZTE was ‘frozen out’ of the UK after the NCSC warned of the “long-term negative effect on the security of the UK” if its products were to be used in the country’s telecoms networks.

Across the Atlantic, US security agencies have alleged that Huawei and ZTE have shared sensitive information with Beijing, and that Chinese security agencies are able to access private US business communications using Huawei and ZTE’s equipment.

In February, FBI Director Christopher Wray told a US senate intelligence committee that his agency was “deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks.”

His comments follow a 2015 FBI report that described perceived threats stemming from Huawei’s “opaque relationship” with the Chinese government.

And in May, the US House of Representatives passed a bill prohibiting federal agencies from purchasing video surveillance equipment from several China-based firms, including Hikvision, Dahua and Hytera Communications. The ban was included as part of an amendment to the National Defense Authorization Act, which was originally limited to the government’s use of technologies and services from Huawei and ZTE.

Chinese tech firms have found themselves in the firing line, and yet there’s no evidence – not one ‘smoking gun’ – that these firms are actually guilty of what they’ve been accused of.

It begs the question that just because a technology company is Chinese, should we necessarily assume that it is conducting clandestine information operations on foreign soil on behalf of the Chinese government?

Are Chinese tech companies government agents?

On the question of whether or not the Communist Party of China (CPC) exerts influence within enterprises in China, the answer is a clear ‘yes’.

In contrast to countries like New Zealand, where there is no expectation that the ruling political party be represented within the corporate governance structures of private enterprises, in China things are different.

According to a major report published last month by the Hong Kong-based Asian Corporate Governance Association (ACGA), from late 2015 onwards, enterprises listed in China began amending their articles of association to incorporate CPC organisations.

By the end of 2016, CPC organisations had been established in 189,000 public enterprises, accounting for around 91 percent of public enterprises. In addition, they had been established in 1.85 million non-public enterprises, accounting for almost 68 percent of the total.

“In theory, the function of Party organisations/committees is to participate in the governance of enterprises, while at the same time not directly meddling in their management and operational decision-making,” states the  AGCA report. “From the beginning, Party committees were established to ensure that significant decisions made by enterprises would not deviate from national laws and regulations, Party discipline and basic political principles.”

Interestingly, the report states that Party organisations in foreign-invested companies more than doubled between 2011 and 2016, from 47,000 to 106,000. Around 70 percent of all foreign-funded firms in China—about 75,000—had set up Party branches.

These numbers reflect the aforementioned consolidation of CPC control under President Xi Jinping and, in particular, moves by Beijing to expand the existing system of embedding Party organisations in State-Owned Enterprises to the private sector.

While this has raised concerns among outsiders over political interference in corporate decision making processes in China, it doesn’t necessarily point to a desire by the Chinese Party-state to exploit such arrangements in order to spy on foreign soil.

It’s a subtle yet important distinction

While there is certainly room for a whole lot more transparency in relation to the influence of the CPC in Chinese companies, it’s something else entirely to assume that such influence would extend to the breaking of foreign laws and the jeopardising of China’s trade relations.

Writing for ZDNet, Jason Perlow argues that the notion that the Chinese government would spy on US corporations and government agencies via Chinese tech companies “is not only absurd but would be catastrophic to furthering their ambitions in world trade.”

It also begs a more general question that is relevant to all companies whatever their nationality, over whether their products are being used to extract private information for third parties without the knowledge of the consumer.

I tend to ascribe to the point of view expressed by Gary Eastwood in The Next Web (TNW), who comments that “it’s safe to say that stealing intellectual property is staggeringly common across international markets, and it’s not too much of a stretch to say that the paranoia over Chinese firms is more ideologically driven than anything else.”

Should we consider alternatives to Chinese tech?

So, just to be on the safe side, should we take a risk-based approach and just steer clear of Chinese-made tech products?

Perlow points out that in addition to their own branded products, Chinese tech firms “also form a large portion of the overall supply chain of manufacturing electronic components used in just about every electronic device manufactured all over the world.”

And if a product has semiconductors in it, he says, there’s a good chance they came from China.

Avoiding Chinese brands doesn’t necessarily result in avoidance of Chinese components in the products you use or in the infrastructure your data connects to. And unpicking China from global supply chains would be a fraught exercise unlikely to be to anyone’s benefit.

Buying non-Chinese also means buying into the myth that Chinese brands spy on behalf of their government – a myth that stinks just as much as the US’ now infamously deceptive claims over Saddam’s weapons of mass destruction.

Challenges to Chinese tech brands

China’s distinctive political values means that it gets a bad rap in countries that identify with starkly different value systems. This is reflected in the relatively low ‘soft power’ and ‘reputation rank’ scores China continues to achieve among Western publics.

Despite China’s now widely acknowledged ranking as the world’s second most powerful country behind first-ranked US, the country languishes as a ‘nation brand’.

China ranked 57th in the Reputation Institute’s 2016 Country RepTrak (placing it at the ‘poor’ end of the scale), which was based on survey of respondents in G8 countries. And in the Portland Communications / University of Southern California 2016 Portland Soft Power 30, China ranked 28th– one place behind Russia.

Author of Brand China, Joshua Cooper Ramo, argued in 2007 that China’s greatest strategic threat is its national image. The threat, stated Ramo, comes in the form of poor quality foreign investment and technology transfers, increased commodity costs due to uncertainty, and inability to exploit trade and investment opportunities due to regulatory and lobbyist barriers, lack of stakeholder confidence and misunderstanding.

As ultra-smart and extremely competitive Chinese tech companies internationalise, they know that the perception cards are stacked against them. They know that they’re up against it in terms of convincing sceptical Western publics that their products aren’t part of some Chinese government conspiracy to do who knows what.

It’s all the more reason why, given all available evidence, that we have nothing to fear from their products.